Johnson & Johnson could start collecting on its new legal strategy for dealing with baby-powder cancer claims as early as Wednesday as it seeks to win an initial courtroom showdown with 35,000 people who claim they were hurt by the widely used product.
The consumer health-care company wants a federal judge to temporarily halt all lawsuits related to the talc in its baby powder so it can negotiate a settlement under bankruptcy rules usually reserved for failed companies that can’t pay their debts.
Johnson & Johnson itself is healthy financially. The company created a new corporation responsible for paying all baby-powder claims, then put that unit into bankruptcy where it will seek a temporary halt to lawsuits.
The strategy, known as the Texas Two Step, has enraged victims who filed lawsuits claiming they got cancer and other diseases from J&J’s baby powder.
“Bankruptcy was the only option to bring an end to litigation that has been increasing at an alarming rate,” attorney Greg Gordon of Jones Day said on behalf of J&J at the hearing Wednesday.
Victim Trust Fund
J&J is seeking to use special rules that allow companies in Chapter 11 bankruptcy to set up a trust fund that pays all current and future asbestos claims. Victims claim the baby powder contains asbestos, an industrial substance that causes fatal lung disorder, and say they developed health problems including ovarian cancer after using the product.
Once a bankruptcy judge approves such a fund, all lawsuits end and the claims are paid through the trust. Setting up such a fund often requires years of negotiation with victims’ lawyers. During those talks, the lawsuits are typically halted, saving the company money.
Gordon said at the hearing that the $2 billion J&J says it’s ready to put into the fund for victims “is not intended to and will not set a ceiling” for potential payouts.
The two sides are facing off in Charlotte, North Carolina, where the unit, LTL Management, sought bankruptcy protection to help negotiate an end to J&J’s talc and asbestos liabilities.
On Monday, J&J asked U.S. Bankruptcy Judge Craig Whitley to block the lawsuits while LTL tries to negotiate a deal with victim groups, arguing in court papers that it deserves the same protection given other parent companies that have faced similar problems.
Under the U.S. Bankruptcy Code, companies that file bankruptcy are routinely granted such protection. Related companies also sometimes get the same help, even if they are not in bankruptcy themselves. For example, lumber giant Georgia Pacific and building products maker CertainTeed both won a reprieve from asbestos lawsuits after units they created under the Texas Two Step sought court protection.
Victim lawyers said in response that LTL filed the wrong paperwork when it sought to protect J&J from the suits.
J&J’s bankruptcy strategy started just as lawyers for victims began gearing up for a trial next year in federal court in New Jersey.
The company denies that its baby powder, which it stopped selling in the U.S. last year, causes cancer.
The case is LTL Management LLC, 21-30589, U.S. Bankruptcy Court for the Western District of North Carolina (Charlotte).
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